Special funds review finds no further deception

JULIET WILLIAMS, Associated Press

A detailed review of more than 500 state special funds released Friday found hundreds of millions of dollars in accounting discrepancies but no instances beyond the state parks department in which government officials purposely underreported the amount of money.

The review by the governor's finance department found discrepancies, sometimes in the hundreds of millions of dollars, in the amount reported to it and the state controller's office by different government departments but attributed those to differences in accounting methods, timing and human error.

Gov. Jerry Brown called for the review after it was revealed that state parks officials had deceived lawmakers and gubernatorial administration for more than a decade by underreporting nearly $54 million in two special funds.

"The bottom line of this review is that there are no such other circumstances in state government based on what we found," Finance Director Ana Matosantos said during a news conference.

The review is important because the finance department's numbers are used to develop the state's general fund budget each year and because lawmakers take millions of dollars in loans from the special funds to close budget deficits.

California's overall budget includes more than $39 billion from 560 special funds, which are generated from taxes and fees for things such as recycling and vehicle registration. Beginning next year, the two agencies will reconcile their figures before the budget process starts, Matasantos said.

The finance department's review found a difference of $3.7 billion in the amount of special fund money reported to the controller's office and the finance department as of June 30, 2011, the end of the 2010-11 fiscal year. After adjusting for bookkeeping differences and a legislative budget gimmick that deferred state payroll by one day, the net difference was $415 million, or less than 5 percent of all money in state special funds.

Even so, the finance and controller's balances for some special funds diverged by hundreds of millions of dollars. That includes a discrepancy of nearly $423 million in the Public Utilities Commission funds. Finance officials said they would launch an audit of the PUC's accounting practices next week.

Matosantos said nearly $84 million of the gap was due to human error that has not yet been fixed. That includes nearly $29 million in the state's restitution fund, which provides funding for crime victims, although it's still unclear whether there is actually additional money available in that account.

The largest differences were in transportation funds, the Fiscal Recovery Fund and Proposition 63, a tax on millionaires to fund mental health services.

Despite the billions of dollars separating the finance department from the controller's office, Matosantos said the budget figures the Legislature relied on this year were "essentially accurate." Besides the state parks money, there likely would not have been additional choices available for spending or cutting, she said.

Still, she said, the governor "wants us to be more accurate than we are today ... He wants to be sure that we can explain at the drop of a hat what the differences are."

After the review was made public Friday, Brown, a Democrat, issued a news release saying he is requiring all state departments to follow new procedures to ensure that the amount of money in state special funds reported to the controller's office and finance department match.

"This case provides clear evidence that Californians deserve a thorough top-to-bottom audit of state government to determine how many more billions of dollars have been squirreled away by career bureaucrats," he said in a written statement.

The review released Friday was prompted by the revelation last month that the parks department had not reported $20 million in the State Parks and Recreation Fund and $34 million in the Off-Highway Vehicle Fund. The deception dated to at least 2000.

On Friday, Brown said $20 million can be appropriated by the Legislature. He will recommend it go toward parks maintenance projects such as repairing water and waste treatment systems and to match money given to the parks by private groups.

The revelations of the hidden money at the parks department sparked widespread outrage because 70 state parks had been threatened with closure this summer as a result of state budget cuts. Nonprofits and local governments throughout the state had rallied to raise money to keep most of them open.

The scandal cost parks director Ruth Coleman and her chief deputy, Michael Harris, their jobs. The department is being investigated by the attorney general's office and is the subject of a separate audit by the finance department.